First Acceptance : Audited Combined Statutory Basis Financials - FAIC

CONSOLIDATED FINANCIAL STATEMENTS - STATUTORY-BASIS AND

SUPPLEMENTARY INFORMATION

First Acceptance Insurance Company, Inc. and Consolidated Subsidiaries

Years Ended December 31, 2021 and 2020 With Report of Independent Auditors

First Acceptance Insurance Company, Inc. and Consolidated Subsidiaries

Consolidated Financial Statements - Statutory-Basis

and Supplementary Information

Years Ended December 31, 2021 and 2020

Contents

Report of Independent Auditors ....................................................................................................... 1

Consolidated Financial Statements - Statutory-Basis:

Consolidated Balance Sheets - Statutory-Basis .............................................................................. 3

Consolidated Statements of Income - Statutory-Basis .................................................................... 4

Consolidated Statements of Changes in Capital and Surplus - Statutory-Basis ............................. 5

Consolidated Statements of Cash Flow - Statutory-Basis ............................................................... 6

Notes to Consolidated Financial Statements - Statutory-Basis ....................................................... 7

Report of Independent Auditors on Supplemental Information .................................................... 31

Supplementary Information ........................................................................................................... 32

Crowe LLP

Independent Member Crowe Global

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors of

First Acceptance Insurance Company, Inc. and Consolidated Subsidiaries First Acceptance Insurance Company, Inc. (FAIC)

First Acceptance Insurance Company of Georgia, Inc. (FAIC-GA) First Acceptance Insurance Company of Tennessee, Inc. (FAIC-TN)

Opinions

We have audited the consolidated statutory basis financial statements of First Acceptance Insurance Company, Inc. and Consolidated Subsidiaries (the Company), which comprise the consolidated statutory basis balance sheets as of December 31, 2021 and 2020, and the related consolidated statutory basis statements of income, changes in capital and surplus, and cash flows for the years then ended, and the related notes to the consolidated statutory basis financial statements.

Unmodified Opinion on Statutory Basis of Accounting

In our opinion, the accompanying consolidated statutory basis financial statements present fairly, in all material respects, the admitted assets, liabilities and capital and surplus of the Company as of December 31, 2021 and 2020, and results of its operations and its cash flows for the years then ended in accordance with accounting practices prescribed or permitted by the Texas Department of Insurance (FAIC), the Georgia Department of Insurance (FAIC-GA), and the Tennessee Department of Commerce and Insurance (FAIC-TN) (collectively referred to as the Departments) as described in Note 1.

Adverse Opinion on Accounting Principles Generally Accepted in the United States of America

In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on Accounting Principles Generally Accepted in the United States of America section of our report, the consolidated statutory basis financial statements do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2021 and 2020, or the results of its operations and its cash flows for the years then ended.

Basis for Opinions

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Statutory Basis Financial Statements section of our report. We are required to be independent of the Company, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Basis for Adverse Opinion on Accounting Principles Generally Accepted in the United States of America

As described in Note 1 to the consolidated statutory basis financial statements, the consolidated statutory basis financial statements are prepared by the Company in accordance with accounting practices prescribed or permitted by the Departments, which is a basis of accounting other than accounting principles generally accepted in the United States of America. The effects on the consolidated statutory basis financial statements of the variances between statutory accounting practices and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material and pervasive.

(Continued)

Responsibilities of Management for the Consolidated Statutory Basis Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated statutory basis financial statements in conformity with accounting practices prescribed or permitted by the Departments. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated statutory basis financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated statutory basis financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for one year after the date that the consolidated statutory basis financial statements are issued.

Auditor's Responsibilities for the Audit of the Consolidated Statutory Basis Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated statutory basis financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated statutory basis financial statements.

In performing an audit in accordance with GAAS, we:

•  Exercise professional judgment and maintain professional skepticism throughout the audit.

•  Identify and assess the risks of material misstatement of the consolidated statutory basis financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated statutory basis financial statements.

•  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, no such opinion is expressed.

•  Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated statutory basis financial statements.

•  Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

Crowe LLP

Franklin, Tennessee

April 22, 2022

First Acceptance Insurance Company, Inc. and Consolidated Subsidiaries

Consolidated Balance Sheets - Statutory-Basis

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